Southern Broadcast Group v. Gem Broadcasting

• Decision Date: 07 June 2001
• Docket Number: No. 6:00-cv-484-Orl-31JGG.,6:00-cv-484-Orl-31JGG.
• Citation: 145 F.Supp.2d 1316
• Parties: SOUTHERN BROADCAST GROUP, LLC, Plaintiff, v. GEM BROADCASTING, INC., and Joseph D. Farish, Jr., Defendants.
• Court: U.S. District Court — Middle District of Florida

Page 1316

145 F.Supp.2d 1316

SOUTHERN BROADCAST GROUP, LLC, Plaintiff, v. GEM BROADCASTING, INC., and Joseph D. Farish, Jr., Defendants.

No. 6:00-cv-484-Orl-31JGG.

United States District Court, M.D. Florida, Orlando Division.

June 7, 2001.

COPYRIGHT MATERIAL OMITTED

Asher Rabinowitz, FL, for Plaintiff.

Ronnie Hugh Walker, Orlando, FL, for Defendants.

ORDER

PRESNELL, District Judge.

This cause comes before the Court on the following matters:

(1) Defendants' Motion for Summary Judgment (Doc. No. 79, filed March 14, 2001);

(2) Gem Broadcasting, Inc.'s and Joseph D. Farish Jr.'s Memorandum in Support of Defendants' Motion for Summary Judgment (Doc. No. 80, filed March 14, 2001);

(3) Defendant's Motion for Summary Judgment on Gem Broadcasting, Inc.'s Counterclaim and Memorandum in Support (Doc. No. 83, filed March 20, 2001);

(4) Plaintiff's Memorandum in Opposition to Defendants' Motion for Summary Judgment (Doc. No. 87, filed March 26, 2001) (5) Plaintiff's Motion for Partial Summary Judgment (Doc. No. 88, filed March 26, 2001);

(6) Plaintiff's Memorandum in Support of Plaintiff's Motion for Partial Summary Judgment (Doc. No. 89, filed March 26, 2001);

(7) Plaintiff's Response in Opposition to Defendant's Motion for Summary Judgment on the Counterclaim of Gem Broadcasting, Inc. (Doc. No. 98, filed March 29, 2001);

(8) Gem Broadcasting, Inc.'s and Joseph D. Farish Jr.'s Memorandum in Opposition to Southern Broadcast Group, LLC's Motion for Partial Summary Judgment (Doc. No. 101, filed April 6, 2001).

I. BACKGROUND

On September 30, 1999, Southern Broadcast Group, LLC (Southern) and Gem Broadcasting, Inc. (Gem) entered into an Asset Purchase Agreement¹ (APA or Agreement) for the sale of two radio stations owned and operated by Gem. The two stations, WTSM and WAOA, broadcast from three antenna towers located in Brevard County, Florida. The purchase price for the two stations was $10,000,000.

Prior to the execution of the Agreement, Southern personnel met with Gem's President, Joseph Farish, to discuss the acquisition of the radio stations. Thereafter, on August 12, 1999, Gem and Southern executed a Letter of Understanding which included a due diligence period, giving Southern between August 12, 1999 and September 15, 1999 to undertake and complete its due diligence. During this period, Southern performed financial projections, retained legal counsel to examine Gem records on file at the Federal Communications Commission, examined various contracts, and made certain inquiries and investigations. Southern also hired a radio engineer to inspect the towers. On September 14, 1999 Michael Oesterle, Manager and Chief Operating Officer of Southern, sent a letter to Gem stating that the due diligence examination results were satisfactory to Southern.

After Gem and Southern signed the Agreement, Media One Group-Florida, Ltd. (Media One) filed a lawsuit against Gem and Southern, contending that it had a valid contract to purchase the stations. The pendency of that lawsuit delayed the closing of the sale from Gem to Southern. The Media One lawsuit was resolved on February 22, 2000, and the parties scheduled a closing one month later. During the interim, Southern had negotiated with third parties to resell the stations, once it acquired ownership. Southern reached an agreement to sell the stations to Cumulus Broadcasting, Inc. (Cumulus) for $9,500,000 and the towers to SBA Communications Corp. (SBA) for $4,625,000. Prior to closing on the Agreement, neither Gem nor Farish had any knowledge of Southern's negotiations to resell the assets.

When SBA conducted its own due diligence, it discovered that two of the towers were structurally defective and that Parcel 4, on which Tower 3 stands, was landlocked. In addition, Southern learned that there was an annual tower revenue shortfall of approximately $60,000. When Southern informed Gem of these deficiencies the closing date scheduled for March 22, 2000 was postponed until April 7, 2000 to allow the parties an opportunity to resolve these issues.

On March 30, 2000, Oesterle and Farish met to discuss the matter. Although Farish was unwilling to correct the deficiencies, he did offer to terminate the Agreement, refund Southern's $500,000 deposit and pay Southern $750,000. This proposal was not acceptable to Southern, and on March 31, 2000, Oesterle wrote Farish a letter stating that if certain actions were taken to resolve the title problem on Parcel 4, Southern would close the transaction. When countersigning the March 31 letter, Farish typed in, below his signature, this statement: "[T]he above conditions are totally immaterial and unessential to the closing of this transaction."

Despite its knowledge of the alleged deficiencies, Southern closed on the radio station assets on April 7, 2000. That same day, Southern sold the assets to Cumulus and SBA. However, since Southern had given SBA the same warranties respecting the towers which it had received from Gem, the Southern/SBA purchase price was reduced to $3,140,000, a reduction of $1,485,000.²

Shortly after the closing, Southern instituted this action against Gem for breach of contract, contending that Gem breached the seller's warranties and representations respecting the station assets. Southern also asserted a claim of fraudulent inducement against Gem and Farish, based on the alleged misrepresentations, as well as an indemnification claim against Gem for costs and attorneys' fees Southern incurred defending the Media One litigation. Gem counterclaimed, alleging that Southern breached the Agreement by failing to remit accounts receivable which Southern had collected post-closing.

Southern now moves for partial summary judgment on its breach of contract claim. Gem and Farish also move for summary judgment on all of Southern's claims. Additionally, Gem moves for summary judgment on its counterclaim. On May 9, 2001, this Court heard oral argument on the motions.

II. DISCUSSION

A. Summary Judgment Standard

Federal Rule of Civil Procedure 56(c) provides that summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 56(c) mandates entry of summary judgment "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). An issue of fact is genuine only if a reasonable jury, considering the evidence presented could find for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-51, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Thus, the court's focus in ruling on a motion for summary judgment is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251, 106 S.Ct. 2505; see also Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir.1997).

B. Southern's Breach of Contract Claim

In Count I of its Complaint, Southern claims that Gem breached its warranties and representations by failing to disclose structural defects in the radio towers, failing to disclose that Parcel 4 was land-locked, and by overstating revenues. No factual dispute exists regarding whether Gem actually breached the warranties in the Agreement concerning structural defects in the towers and overstatement of revenues.³ Indeed, counsel for Gem tacitly conceded this point at the hearing on this matter, and the documentary evidence in the record clearly reflects that there was structural damage to the towers and a rent arrearage on the tower leases. Rather, Gem argues that Southern cannot establish reliance on the warranty as a necessary element to its breach of warranty claim or, alternatively, that Southern waived its right to sue for breach of warranty because it proceeded to close the deal with full knowledge of the deficiencies. Gem further argues that Southern cannot sue for breach of warranty because it failed to give notice of the breach as required by the parties' Agreement. The Court will address each issue in turn.

(1) Reliance as Element of Breach of Warranty Claim

Under Florida law, an express warranty arises where the seller asserts a fact of which the buyer is ignorant prior to the beginning of the transaction, and on which the buyer justifiably relies as part of the "basis of the bargain." Hobco, Inc. v. Tallahassee Assoc., 807 F.2d 1529, 1533 (11th Cir.1987); Thursby v. Reynolds Metals Co., 466 So.2d 245, 250 (Fla.Dist.Ct. App.1984). The Florida Supreme Court has not yet decided whether proof of reliance is required to recover for breach of an express written warranty.⁴ A review of the law of other jurisdictions, however, reveals a split of authority on the issue.

The Eighth and Tenth Circuits, applying Minnesota and Kansas law respectively, have found that reliance is essential to a buyer's recovery under an express written warranty. See Hendricks v. Callahan, 972 F.2d 190 (8th Cir.1992); Land v. Roper Corp., 531 F.2d 445 (10th Cir.1976). In contrast, a decisive majority of courts that have considered the issue have found that reliance is not an element in a claim for breach of warranty. See, e.g., Wikoff v. Vanderveld, 897 F.2d 232, 240-41 (7th Cir. 1990) (Illinois law); Giuffrida v. American Family Brands, Inc., No. CIV. A. 96-7062, 1998 WL 196402, at *4 (E.D.Pa. Apr.23, 1998) (Pennsylvania law); Pegasus Mgmt. Co., Inc. v. Lyssa, Inc., 995 F.Supp. 29, 39 (D.Mass.1998) (Connecticut law); Glacier Gen. Assurance Co. v. Casualty Indem. Exch., 435 F.Supp. 855, 860-61 (D.Mont. 1977) (Montana law); CBS Inc. v. Ziff-Davis Publ'g Co., 75 N.Y.2d 496, 554...